Liquidity provision in the overnight foreign exchange market
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Date
2004Metadata
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- Discussion Papers [1002]
Abstract
Abstract:
We presents evidence that non-financial customers are the main liquidity providers in the overnight
foreign exchange market using a unique daily data set covering almost all transactions in the
SEK/EUR market over almost ten years. Two main findings support this: (i) The net position of nonfinancial
customers is negatively correlated with the exchange rate, opposed to the positive
correlation found for financial customers; (ii) Changes in net position of non-financial customers are
forecasted by changes in net position of financial customers, indicating that non-financial customers
take a passive role consistent with liquidity provision.
Keywords: Microstructure, International finance, Liquidity